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Presentation of results for the fourth quarter
and full year 2017CEO Pål Wibe
CFO Espen Eldal 1 February 2018
Norway’s leading
discount variety retailer
2
• Group revenues up 1.5% to NOK 1,629m
(1,604m)
Good Christmas trading, but a slow start
Backloading of new stores significantly reduced
sales growth vs. last year (-1.4 p.p)
Sales from wholesale to franchise stores
temporarily affected by planned inventory reduction
LfL of -0.1 per cent (2.4% sales days adjusted)
• Adjusted net profit down 6.8% to NOK 195m
(209m)
• Solid cash generation – leverage of 1.7x
Healthy inventory levels at year end from measures
implemented earlier in the year
• Milestone of 250 stores reached
Five new stores in quarter
Highlights in the fourth quarter
3
• Continued topline expansion
6.6% growth in group revenues to NOK 5,423m
(5,085m)
3.1% LfL growth – above market growth of 0.9%
Nine franchise takeovers and eleven new stores
• Adjusted net profit down 6.3% to NOK 388m
(414m)
• New warehouse on plan – expected to
reduce opex % longer term
Limited capex requirements
Highlights full year 2017
•Adjusted net profit
•Group revenue
388414
2017 2016
5 4235 085
2017 2016
4
Adjusted EPS and dividend
• The BoD proposes an ordinary dividend of
NOK 1.70 per share for 2017
• Up 13.3 per cent vs. last year
• Total dividend payment of NOK 284 million
• Dividend distribution will be carried out by
way of a repayment of paid in capital
Adjusted EPS and DPS (NOK)*
1,70
2,32
1,50
2,48
0,50
DPS 2017 EPS 2017 DPS 2016 EPS 2016
* Based on 167 million shares.
5
•Retail sales per quarter (NOK million)
Sales performance
1,076
1,409
1,310
1,730
1,166
1,540
1 378
1 773
Q1 Q2 Q3 Q4
2016 2017
• Chain sales grew by 2.5% in Q4
• Good Christmas seasonal period Strong product portfolio; elaborate pre-season
training; consistent execution and layout
• Slow start mainly caused by three elements Backloading of new store openings (impact on
growth of -1.4 p.p vs. last year)
Spill-over of effects from Q3 into Q4
Highly favourable weather in Q4 2016
• Execution challenges in first half of quarter
identified – clear measures implemented Increased central control in periods outside main
seasons
Spacing, planograms and volumes
6
Relative growth development
Total growth development LFL development
0,5 %0,9 %
-0,1 %
3,1 %
-1%
0%
1%
2%
3%
4%
5%
6%
7%
Q4 2017 2017
Market Europris
Y-o-Y LFL growth (%)
2.2-0.6
Europris growth rate in excess of market growth rate in the period% points
•Source: Kvarud analyse, Shopping Centre Index, December 2017; Europris analysis
1,1 %
1,8 %
2,5 %
6,0 %
0%
1%
2%
3%
4%
5%
6%
7%
Q4 2017 2017
Market Europris
1.4 4.2
7
Source: DNB, Statistisk Sentralbyrå / Statistics Norway (SSB) and Kvarud analyse. SSB figures: SSB total retail denotes “Detaljhandel i alt ekskl. Motorvogner og bensin”; SSB wide assortment – other denotes “Bredt
vareutvalg ellers”.
Note: SSB figures based on data collected from a panel of c. 1 500 retail companies (selection drawn once a year; companies included throughout last four years excluded) and up to c. 14 600 direct stores. The statistic
covers approximately 80% of sales within retail according to SSB. SSB statistic published 4-5 weeks post previous month end.
1,8 %
3,0 %
2,3 %
3,2 %
5,2 %4,8 %
6,0 %
7,7 %
0,0 %
1,0 %
2,0 %
3,0 %
4,0 %
5,0 %
6,0 %
7,0 %
8,0 %
9,0 %
2017 2016
Kvarud shopping Centre Index
SSB: total retail
SSB: wide assortment - other
Europris
Total growth comparison• Europris once again beat the market for the
full year and continues to take market share
in a growing market segment
• Overall market growth reduced in line with
inflation in 2017 Growth in 2015 and 2016 mainly driven by price
due to currency movements
Inflation was 3.6% in 2016 and 1.8% in 2017
Europris continues to strengthen its share –
growth well ahead of market
8
Category and concept development – key
pillars in continued seasonal success
9
Increasing central control of spacing,
planograms and volumes
10
E-CRM – a tool for better decision making and
customer specific communication
TOTAL # OF POTENTIAL
CUSTOMERS
DM LEAFLET / TRADITIONAL MARKETING
DIGITAL MARKETING +
RECEIPT / CUSTOMER BEHAVIOUR ANALYSES
INCREASED
SOPHISTICATION
IN DECISION
MAKING • MER programme – customer
specific communication and
information
• Analyses of general customer
behavior and shopping patterns
• Better decision making for
marketing, campaigns and
other customer facing activities
11
Pipeline of new stores remains robust
• Five stores opened during Q4 Langevåg in Møre & Romsdal county
Risør in Aust-Agder county
Dale in Sogn & Fjordane county
Grong in Trøndelag county
Øvre Årdal in Sogn & Fjordane county
• Solid pipeline of new stores for 2018 Nine stores planned so far (one store opened in
January in Lillehammer)
Two stores subject to zoning process
• Seven stores already planned for 2019/2020
Europris # 250 at Øvre Årdal
Europris Dale
New central warehouse – expected effects
– this year’s “Christmas Gift”
13
Moving from five to one – new site located
nearer the group’s stores
Hjalmar Bjørges vei Havnelageret
Værste KampenveienØra
Automatic high
bay storage 65,000 pallets
Traditional
warehousing35,700 pallets
14
Preparing for continued growth…
• Significant capacity increase comes with a
reduction in total area subject to rent
Preparing Europris for continued growth
Catering for long term ambitions
• New, modern and purpose built facility
Enables efficient personnel and system
operations
Single site logistics
Fully automated high bay storage
Automated order picking stations
• Long term lease agreement with Fabritius
Gruppen AS
15 year lease + extension right
Open book principle based on agreed project
yield (subject to cap on annual rent)
OLD set-up # of
pallets
Square
meters
Øra 36,900 30,000
Hjalmar Bjørges vei 16,400 16,700
Værste 5,700 7,000
Kampenveien 10,200 11,500
Havnelageret 6,200 5,700
Total 75,400 70,900
NEW set-up # of
pallets
Square
meters
Moss 100,700 62,000
Total
capacity
+34%
Area
subject to
rent
-13%
15
…with dedicated space for e-commerce
16
• Warehouse automation, logistics fixtures and
fittings financed through 10-year lease
agreement
Automated high bay storage system by Swisslog
Automated order picking stations
Conventional racking in low-rise area
Conveyors, etc.
• Limited capex requirements – office
equipment and IT mainly
Estimated at a total of c. NOK 15m during the
course of 2019 and 2020
Capital equipment mainly financed
through lease agreement
17
• Significant efficiency gains long term
Expected reduction in the ratio of opex/group
revenue of between 0.5-1.0 p.p
• Several drivers of increased efficiency
Lower lease expenses
Reduction in transportation costs
General savings from more efficient operations
• Details on certain transition costs and non-
recurring costs related to move included in
appendix
•Note: assuming normal course of business, and no other efficiency gains or losses affecting the ratio of operational expenses to group revenue
Significant efficiency gains expected
30,8 %
29,8 %
30,3 %
2017 … … 2023
Reduction
of between
0.5-1.0 p.p
Period of transition
•OPEX in % of group revenue
Financial review
19
• Gross margin was 44.0% in Q4 2017 vs.
44.2% in Q4 2016
• Last year included one-off cost of 7.5m
related to franchise takeovers
• Overall campaign share of sales has
stabilised Relative portion of sales from products on the
front page of the DM has increased
•Gross margin
Gross margin development
41,6 %43,3 %
41,9 %
44,2 %42,9 %
40,9 %
42,9 %42,1 %
44,0 %42,6 %
Q1 Q2 Q3 Q4 FY
2016 2017
20
• OPEX in % of revenue was 26.5% in Q4 2017
vs. 26.1% in Q4 2016
• Opex impacted by increase in number of
directly operated stores 20 additional directly operated stores vs. last year
• Opex reduced by: Increased marketing support from suppliers, 9.5m
Reduced performance-based remuneration, 10.1m
• Certain planned operational initiatives Changed distribution
Digital channels
•OPEX in % of group revenue
OPEX development
36,1 %
28,0 %
31,3 %
26,1 %
29,8 %
37,8 %
28,3 %
32,9 %
26,5 %
30,8 %
Q1 Q2 Q3 Q4 FY
2016 2017
21
• Adjusted EBITDA was NOK 285m in Q4
2017 vs. NOK 291m in Q4 2016
• Adjusted EBITDA impacted by Low sales growth
Temporarily lower sales from wholesale to
franchise stores following planned reduction in
inventory
Higher fixed cost base as a result of increase in
number of directly operated stores
•Adjusted EBITDA (NOK million)
Adjusted EBITDA development
56
191
129
291
667
34
205
117
285
641
Q1 Q2 Q3 Q4 FY
2016 2017
22
• Cashflow for the quarter impacted by the
planned inventory reduction Initiatives implemented following Q2 highly
effective for reduction of inventory in stores
On a per-store basis, inventory has been
reduced from last year
Wholesale inventory reduced from Q2, but
slightly ahead of last year
• Working capital also impacted by reduction
in trade receivables Fewer franchise stores compared to last year
Reduced wholesale sales to franchise stores in
Q4
• Income tax paid increased by 29m
Cash flow, NOK million
Q4
2017
Q4
2016
FY
2017
FY
2016
Cash from operating activities 408 459 477 473
Cash used in investing activities -29 -35 -132 -101Cash (used in)/from financing
activities -1 -4 -340 -242Net change in cash and cash
equivalents 377 420 5 130Cash and cash equivalents at
beginning of period 204 157 577 447Cash and cash equivalents at end of
period 582 577 582 577
Cash flow
23
Summary
• Sales started slow, but ended with a well
executed Christmas season Clear measures implemented to improve
performance in periods outside main seasons
• Delivered on the measures initiated to
improve inventory turnover
• Ordinary dividend per share increased by
13.3%
• Well positioned for further growth: Discount variety retail continue to take market
share
Strong pipeline of new stores
Category development is key for success –
awarded for several new products in Q4
Making progress on e-commerce
24
Outlook
• Macro indications for Norway are positive
• Continued growth in long term revenue and
profits supported by the group’s leadership
position in a solid market segment
• Europris has a strong pipeline of new stores One store already opened and eight more planned
so far for 2018
Five stores already planned for 2019
• Increasing share of directly operated stores Four franchise takeovers on 1 Jan 2018
Larger fixed cost base makes profits more
exposed to seasonality in revenue
• E-commerce represents an opportunity
• New warehouse expected to provide benefits
longer term
Q & A
Appendix
27
• Significant efficiency gains long term reducing opex / group revenue between 0.5-1.0 p.p.
from today’s level – assuming normal course of business
Equivalent to a reduction of between NOK 27 – 55m in opex, assuming 2017 volume levels
Full effect from 2023 post exit of final warehouse at Øra
Takes into account additional lease expenses related to warehouse automation, fixtures and fittings
Main drivers of increased efficiency:
Lower lease expenses
Reduction in transportation costs – location closer to “the average store” and closer to main infrastructure
General savings from more efficient operations – no need for intra-warehouse logistics; efficient use of personnel; increased
automation for management of product in- and outflows; limited maintenance requirements; etc.
• Certain additional costs expected during a period of transition (“transition costs”) – will limit
efficiency gains in 2019 and 2020
Testing of automatic high bay area for a period of 12 months – operations at both Moss and Øra
Roughly ½ of 2019 and ½ of 2020
Øra lease extends to 2022 – potential for reducing transition costs depending on extent of sub-lease (current
annual lease expense of c. NOK 25m)
• Non-recurring costs related to moving warehouses will be incurred in 2019 and 2020
Tentative estimate of c. NOK 5-10m in each of 2019 and 2020
Will be reported as non-recurring
Significant efficiency gains expected
28
•Number of sales days
•Note: Number of projects in 2018 is a moving target, and is subject to change during the year based on operational considerations. An updated view will be presented during the quarterly presentations going forward
Additional materials
Year Q1 Q2 Q3 Q4 Total
2016 74 75 79 81 309
2017 77 71 79 79 306
2018 75 73 78 80 306
2019 76 71 79 80 306
2017 Q1 Q2 Q3 Q4 Total
New stores 3 2 1 5 11
Store closures - - - - -
Relocations (1) 1 (1) 1 4 6 (2)
Modernisations 9 (2) 5 (1) 3 2 19 (3)
•Number of store projects (franchise projects in brackets)
2018E Q1 Q2 Q3 Q4 Total
New stores 2 3 2 2 9
Store closures - - - - -
Relocations 2 2 (1) 1 (1) 2 7 (2)
Modernisations 5 2 3 2 12
29
• The above table estimates the pro forma effect on group financials per quarter in 2017 of the
four franchise takeovers completed on 1. January 2018
I.e. the above table estimates what the effects of the takeovers would have been on 2017-financials had
they been completed 1. January 2017
• The table does not reflect the one-off effect associated with completing franchise takeovers
Franchise takeovers – pro forma effects on
group financials per quarter 2017
Year Q1 Q2 Q3 Q4 Total
Group revenue 5,5 11,0 9,9 13,1 39,5
COGS 1,5 5,2 3,8 6,0 16,5
Gross profit 4,0 5,8 6,0 7,1 23,0
Opex 5,4 5,3 5,8 6,0 22,5
Adj. EBITDA -1,4 0,5 0,3 1,1 0,4
Depreciation 0,2 0,2 0,2 0,2 0,9
Adj. EBIT -1,6 0,3 0,0 0,8 -0,4
•Pro forma effect on group financials per quarter in 2017 – franchise takeovers completed 1.1.2018
30
•APMs are used by Europris for annual and periodic financial reporting in order to provide a better understanding of Europris’ financial
performance and are also used by management to measure operating performance. APMs are adjusted IFRS figures defined, calculated
and used in a consistent and transparent manner.
• Gross profit represents group revenue less the cost of goods sold excluding unrealised foreign currency effects.
• Opex is the sum of employee benefits expense and other operating expenses.
• EBITDA (earnings before interest, tax, depreciation and amortisation) represents Gross profit less Opex.
• Adjusted EBITDA is EBITDA adjusted for nonrecurring expenses.
• Adjusted profit before tax is net profit before tax adjusted for nonrecurring items.
• Adjusted net profit is net profit adjusted for nonrecurring items.
• Adjusted earnings per share is Adjusted net profit divided by the current number of shares (166,968,888).
• Working capital is the sum of inventories, trade receivables and other receivables less the sum of accounts payable and other current liabilities.
• Capital expenditure is the sum of purchases of fixed assets and intangible assets.
• Net debt is the sum of term loans and financial leases less bank deposits and cash.
Other definitions
• Directly operated store means a store owned and operated by the group.
• Franchise store means a store operated by a franchisee under a franchise agreement with the group.
• Chain means the sum of directly operated stores and franchise stores.
• Like-for-like are stores which have been open for every month of the current calendar year and for every month of the previous calendar year.
•
Alternative Performance Measures
Presentation of results for
first quarter 2018
See you 19 April 2018
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